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Indonesia c.bank keeps rates at record lows as it trims 2021 GDP outlook

04/20/2021 | 04:05am EST

* Benchmark kept at record low of 3.50% as expected

* Governor says global recovery stronger than expected

* But trims 2021 domestic GDP forecast to 4.1%-5.1% from 4.3%-5.3%

* Says to keep strengthening measures to support rupiah

JAKARTA, April 20 (Reuters) - Indonesia's central bank kept its main policy rate at a record low on Tuesday and trimmed its 2021 growth forecast for Southeast Asia's largest economy, while pledging to strengthen measures to keep the rupiah currency stable.

Bank Indonesia (BI) left the benchmark 7-day reverse repurchase rate at 3.50%, where it has been since February and as expected by all 27 analysts in a Reuters poll.

Governor Perry Warjiyo said a global economic recovery had been stronger than initially anticipated, underpinning demand for Indonesia's exports, but warned domestic consumption remained muted due to mobility restrictions to control the coronavirus outbreak.

BI's forecast for economic growth this year was trimmed to 4.1%-5.1% from 4.3%-5.3% previously.

"Consumption is also improving according to various indicators ... but the level of improvement, based on the latest data, is lower than our earlier expectation," Warjiyo told a streamed news conference.

BI would keep strengthening measures to stabilise the rupiah, he said. Indonesia's currency has been caught up in a broad sell-off in risk assets over the past two months, driven by rising U.S. inflation expectations and U.S. Treasury yields.

The rupiah has firmed slightly in recent days but remains one of the worst performing currencies in emerging Asia, with losses of 3.1% so far this year.

The currency gained slightly after the policy announcement and Warjiyo said he believed the rupiah would continue to strengthen on portfolio inflows.

"The current (rupiah) exchange rate and government bond yields are attractive and that's why we've seen capital inflows, especially to the bond market, albeit not yet big," he added.

After suffering its first full-year contraction in over two decades in 2020, the economy is expected to post its first positive growth in five quarters in April-June as mass vaccination is rolled out, the government has said.

BI has cut interest rates by a total of 150 basis points, pumped 798.85 trillion rupiah ($55.11 billion) liquidity into the financial system and relaxed lending rules since 2020 to help Indonesia weather the COVID-19 pandemic.

Warjiyo said BI would focus on accelerating the transmission of past policy easing onto bank lending and supporting the country's digital payment system to bolster the economic recovery.

"BI will leave the benchmark unchanged for the foreseeable future, being mindful to not exacerbate IDR depreciation further amid the uptrend in inflation," Wisnu Wardana, Bank Danamon economist said.

Analysts in the Reuters poll predicted BI would keep rates on hold for the rest of the year, with some expecting rate hikes at the beginning of 2022.

BI officials have said rates would be kept low until signs of inflationary pressure emerge. Inflation hit a seven-month low of 1.37% in March, but BI expected a further rise this year to within a 2% to 4% target range. ($1 = 14,495.0000 rupiah) (Reporting by Gayatri Suroyo and Fransiska Nangoy; Additional reporting by Tabita Diela; Editing by Ana Nicolaci da Costa and Ed Davies)


ę Reuters 2021
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